Consider the information provided in Problem 23-4. Suppose the market price drops to only $5 per pizza. In the short run, should this pizzeria continue to make pizzas, or will it maximize its economic profits (that is, minimize its economic loss) by shutting down?

Problem 23-4

The table represents the hourly output and cost structure for a local pizzeria. The market is perfectly competitive, and the market price of a pizza in the area is $10. Total costs include all opportunity costs. Fixed costs equal zero.

a. Calculate the total revenue and total economic profit for this pizzeria at each rate of output.

b. Assuming that the pizzeria always produces and sells at least one pizza per hour, does this appear to be a situation of short-run or long-run equilibrium?

c. Calculate the pizzeria's marginal cost and mar- ginal revenue at each rate of output. Based on marginal analysis, what is the profit-maximizing rate of output for the pizzeria?

d. Draw a diagram depicting the short-run mar- ginal revenue and marginal cost curves for this pizzeria, and illustrate the determination of its profit-maximizing output rate.